NBER Working Papers and Publications

The last decade witnessed an explosion of research into the impact of international technology differences on the factor content of trade. Yet the literature has failed to confront two pivotal issues. First, with international technology differences and traded intermediate inputs there does not exist a Vanek-consistent definition of the factor content of trade. Restated, we do not know what we are trying to explain! We fill this gap by providing the correct definition. Second, as Helpman and Krugman (1985) showed, many models beyond Heckscher-Ohlin imply the Vanek prediction. So what model is being tested? We completely characterize the class of models being tested by providing a familiar `consumption similarity' condition that is necessary and sufficient for the Vanek prediction. We illus...

Within developing and newly industrialized countries, rising wage inequality is both common and highly correlated with export growth. This is incompatible with the Stolper-Samuelson theorem, but suggestive of a role for technological catch-up. We develop this insight using a model that features both Ricardian and endowments-based comparative advantage. In this model Southern catch-up induces a correlation between rising inequality and export growth. It also induces a shift in trade patterns that results in skill upgrading and rising inequality in both the South and the North. A rudimentary empirical exercise reveals that, as predicted, Southern skill upgrading is correlated with the trade-weighted average rate of Southern catch-up.